Tax news for financial institutions
Summary of key tax developments for financial institutions in Poland.
Inflation (CPI) in Poland rose to 8.6% in December 2021 (compared to December 2020). This is the highest inflation rate since December 2000 and it has been driven by the prices of electricity, gas (and other fuels), water, food and non-alcoholic beverages, as well as housing and utilities.
The National Bank of Poland has raised its main interest rate to 2.25%. Furthermore, to fight inflation, the Polish government has proposed a package of subsidies and tax cuts called anti-inflationary shields, including:
- VAT reduction (from 23% to 8%) on gas to be applicable between January and July 2022,
- VAT reduction (from 23% to 5%) on electricity to be applicable between January and July 2022,
- excise duty reduction on fuel and electricity applicable until May 2022,
- excise duty exemption for electricity paid by households applicable between January and May 2022,
- retail tax exemption for fuel sold between January and May 2022,
- VAT reduction on heating applicable between February and July 2022,
- VAT reduction to 0% on most food products and fertilizers applicable between February and July 2022.
The key changes in taxation of individuals, which came into force on January 1, 2022 (as part of the Polish Deal), include:
- increasing the tax-free amount (from PLN 8,000 to PLN 30,000 p.a.),
- raising the threshold of the higher (32%) PIT rate (standard PIT rate is 17%) from PLN 85,528 to PLN 120,000 p.a.,
- cancelling tax deductibility of health insurance premiums,
- introducing a new tax relief (the so-called middle-class relief) for certain taxpayers (whose revenues generally do not exceed PLN 133,692 per annum) to offset the negative impact of the three above-mentioned changes.
Although the amendments were supposed to be beneficial for a great majority of Poles, considering the mechanism of determining advance payments (withheld by the employer under the pay as you earn system), some taxpayers now pay higher taxes than last year.
To address this issue (which seems to be only a timing-related problem linked with tax advance payment), on January 8, 2022, the Minister of Finance issued a special regulation. Although it formally concerns postponing the deadlines set for tax remitters (employers), in fact it changes the way PIT advance payments are calculated. According to the regulation, tax remitters are obliged to:
- calculate the hypothetical amount of tax that would be due if the remuneration paid in 2022 was subject to the taxes applicable in 2021,
- compare the amount of the hypothetical tax and the tax that is due under the 2022 rules,
- withhold the tax according to the rules that result in lower taxation (2021 or 2022). If the tax has already been withdrawn in a higher amount, the excess should be refunded to the taxpayer.
The regulation has triggered controversy: some experts raise doubts as to whether the Polish Minister of Finance is authorised to issue a regulation of this kind (on the argument that such changes should be introduced in the form of a law, not a regulation). What is more, there are also practical problems with implementing the changes into HR / payroll IT systems.
Mid-2020 Poland implemented the Horizontal Tax Monitoring program which is based on the OECD 2013 Co-operative Compliance (preceded by the so-called enhanced relationship).
The idea behind the program is to put taxpayers and tax authorities (revenue bodies) on an equal footing and establish a relationship of trust and co-operation with large business taxpayers. It is expected that taxpayers, encouraged by the benefits offered, would agree to go beyond their statutory obligations. The main benefits for taxpayers are: lower compliance costs, reduced uncertainties over tax positions and overall, more effectible tax risk management.
For the program to be successful, the issues to be followed by tax authorities are: commercial awareness, proportionality, openness (disclosure and transparency), responsiveness, and impartiality.
The Polish Horizontal Monitoring Program is based on three main pillars:
- cooperation agreement (a framework of cooperation) - concluded between the taxpayer and tax authorities,
- tax arrangements – addressing specific tax issues or controversies that may arise in the course of the cooperation (advance tax rulings, advance pricing arrangements, but they may be useful also in other, non-formalized matters),
- tax audits – initial (before entering into the cooperation agreement) and subsequent, monitoring audits (during the cooperation).
Not every taxpayer can join the program. Only those whose taxable revenues exceed EUR 50,000,000, with proper tax governance framework and tax risk management systems in place (as confirmed by the initial audit) will be accepted as partners by the Polish authorities.
No cooperation agreement has been concluded so far. However, the Polish Ministry of Finance has reported that certain large taxpayers (including multinationals and large Polish businesses) are finalizing the accession stage.
Taking into account the increased number of tax compliance obligations, enhanced cooperation between taxpayers and tax authorities has great potential.